tempus fugit

Scientific American: “The American Economy is Rigged– and What We Can Do About it.”

2018-11-07

Risking repetition, I would like to once again recommend this article by famous/controversial economist Joseph Stiglitz in November’s Scientific American. I have been harping on the evils of income inequality for years, although I believe capitalism is an essential part of modern society. The article shows how “unrestrained” (actually, rigged) capitalism contributes to a feedback mechanism that worsens income inequality persistently and iniquitously– how there are two stable equilibria in the basic equations of our capitalism: equal society and grossly unequal (and worseningly so) society.

The problem is not “free markets” but rigging of markets and rules that favor some participants over others, leading to the accumulation of wealth by increasingly powerful entities. Attempts to control this problem began in the late nineteenth century in America with antitrust legislation, famously promoted by Theodore Roosevelt as the “Square Deal.” Repeal of Roosevelt’s innovations led to a maximum inequality in 1929 and probably were a major cause of the stock market crash that led to the Great Depression. Then another Roosevelt, FDR, gave us the “New Deal” that lasted until Nixon’s corrupt dealings brought back rigging of the system. We all know what happened since then: median income has not increased, even as productivity increased, over the last 40 years, and lower strata have actually gotten poorer during this time.

In fact, with additional thought, we can see that the second equilibrium almost inevitably leads to unstable, overall impoverished societies that are prone to revolution, with disastrous results. The examples of Soviet Russia (after Imperial Russia collapsed from inequality) and the People’s Republic of China (after Republican China was destroyed by civil war after their relatively “calm” Republican revolution) in the last century show that when inequality reaches an unsustainable extreme (usually only after a long period of declining productivity and overall impoverishment) violent revolution occurs and unspeakable cruelties are visited upon those who previously benefited from and were protected by government.

The only way to prevent this type of disaster is to end the favoritism that accompanies political power amassed by individuals and giant corporations. For example, the US health system, despite being the most innovative in the world (partly due to capitalism), offers the least bang per buck of all developed societies (all thirty or so countries) in the world. Americans spend the most money per capita (meaning large payments by a few individuals and inadequate resources for the rest) and get the poorest results in life expectancy and quality of life. There are always a few outliers who can live to 100 despite being former slaves, but the money spent by rich people on medical care gives them a pronounced advantage.

This failure of our health care system is directly related to the roughly five hundred million dollars a year and 2732 lobbyists used by medical corporations and groups in lobbying for and against candidates and laws in our government. This is the rigging of the system that causes bad results– yet it seems impossible to remedy once it has developed.

Nothing could be simpler. But to convince yourself of that, you need to read the article– it’s not paywalled.